Can Menthol Beat a Ban?

San Francisco may be just the tip of the iceberg

Editor’s Note: Since the publication of this article in the July issue of CSP magazine, San Francisco and Minneapolis passed their versions of an ordinance banning or restricting menthol sales.

One-third.

That is menthol’s share of overall cigarette sales, according to various industry numbers. If that figure is not significant enough, consider that Reynolds American Inc.’s Newport, which is largely a menthol-flavored brand, is No. 2 in cigarette sales in the United States, according to The Maxwell Report, Richmond, Va., and McLane market-share figures.

So as recent San Francisco-area proposals rekindle the menthol flavor ban on tobacco products, retailers are concerned that a significant portion of their livelihoods may be at risk.

Dee Dhaliwal, owner of Dhaliwal & Associates, Pleasanton, Calif., sees the newly proposed flavor bans as yet another affront to small, family-owned businesses that face regulatory challenges with core categories such as fuel and soft drinks. He also does not understand why government officials are proposing the bans.

“[Tobacco] is heavily regulated,” Dhaliwal says. “We’re very particular about checking IDs. I guess they’re just looking for the next thing to attack.”

A growing number of California cities and counties have recently considered ordinances that would ban the retail sale of flavored tobacco products, including menthol cigarettes and menthol, mint and wintergreen tobacco products, says Thomas Briant, executive director of NATO, Minneapolis. The California areas include Contra Costa County, Oakland, San Francisco and San Leandro.

According to industry sales data, a complete ban on all flavored tobacco products, including menthol cigarettes, cigars, pipe tobacco, electronic cigarettes, vapor products and moist chewing tobacco, would result in the average Oakland, Calif., c-store losing $83,626 in annual net income, Briant says.

“The business model for a convenience store relies on gasoline sales at the outside pumps, plus tobacco sales making up 36% of in-store sales,” Briant says. “This significant decline in net income will be exacerbated because of the loss of other product sales ... when adult customers drive a short distance to an adjacent city to buy their preferred tobacco products and make other purchases.”

Menthol got a reprieve in 2009 when federal lawmakers exempted it from banned cigarette flavors in the Tobacco Control Act.

The exemption, however, hinged on research assigned to the U.S. Food and Drug Administration (FDA), which would eventually support a menthol ban. Legal battles around the FDA’s findings continue.

Proponents of the law say their focus is reducing harm to the public and trying to stop tobacco use among young people. “For too long, the tobacco industry has gotten a pass while they selectively target vulnerable populations with flavored tobacco products,” said San Francisco Supervisor Malia Cohen, who sponsored new flavor-ban legislation in her city. “Flavored tobacco hooks new smokers and makes them lifelong users.”

Much of the argument for flavor bans focuses on young people, Briant says. But a 2016 FDA study shows a majority of youth under 18 obtained tobacco products from so-called social sources, he says. These include older friends, adult-age siblings, parents and even strangers who buy tobacco products legally and give them to underage youth.

At the time of that study, the legal age to buy tobacco products in California was 18. Now it’s 21. Briant says high school students today can no longer rely on 18-year-old seniors to legally buy them tobacco products.

He points to another study sponsored by the FDA and conducted by the Institute of Medicine that showed raising the minimum legal age to 21 would mean those who can legally obtain tobacco are less likely to be in the same social networks as high school students.

“California local lawmakers need to allow the age-21 law to work … instead of banning the sale of legal, flavored tobacco products to every adult who is 21 or older,” says Briant.

Another argument supporting menthol bans relies on at least one FDA report siding with the bans that is still under dispute in the courts, Briant says, so basing any ban on that research would be “inappropriate.”

A major risk of a ban on menthol, or other flavored tobacco products, is the potential rise in the black market. Briant points to New York City, where a tobacco product flavor ban and high excise taxes have resulted in a broad illegal market in tobacco products.

That, he says, will only hinder efforts to stop tobacco products from getting into the hands of minors.

Such ordinances also put cities and counties at risk of losing stores.

“A lot of the smaller c-stores depend on revenue from cigarettes,” Dhaliwal says. “It’s not a very high-margin product, [but] it drives a lot of traffic in convenience stores.”

Stayed tuned to CSP Tobacco for ongoing coverage of the proposed menthol bans.

Since 2003 CSP magazine has ranked No. 1 in readership and market share over all other industry publications. C-store marketers have identified CSP as the preferred magazine source for their trade marketing communications. With industry-leading, highly targeted circulation to more than 100,000 subscribers, CSP reaches the key convenience retailing decision-makers fifteen times a year.